We keep our tactical recommendation at NEUTRAL but cut SoTP-based TP to Bt11.2 (from Bt12)to reflect an earnings downgrade. We also lowered the value of its investment in VGI and RABBIT after incorporating the recent drop in share prices. Our TP would be Bt6.7 without the Green Line concession extension. Although the final verdict on the BMA debt issue will be finalized within one month and the verdict should be in favor of BTS, this is already in the market and we see no upside to our TP. Additionally, the potential of impairment of VGI due to the fall in KEX share price will be overhang for the stock. Recap 1QFY24 (Apr–Jun 2023) results. BTS reported a net loss of Bt772mn, worse than the Bt222mn loss in 4QFY23 and the Bt536mn profit in 1QFY23. The key drag was impairment loss of Bt741mn from Rabbit Holdings’ investment in SINGER. BTS said the rationale for booking impairment loss at Rabbit is that the expected value of the investment is lower than book value. (Note that Rabbit invested in SINGER at a cost of Bt36.3/sh). Stripping out non-recurring items, core loss in the quarter was Bt127mn, worsening from the Bt38mn loss the previous quarter and Bt464mn profit in 1QFY23. Key takeaways from the analyst meeting. The tone was neutral. A prominent question was about its strategy on investment in JMART, SINGER and KEX. Management views that these are three good companies, but BTS is planning to lower the loss contributed by KEX (through VGI), which has been a big drag on earnings for many quarters. It expects to finalize the plan in 1-2 quarters. For the BMA debt issue, BTS expects the final verdict from the Supreme Administrative Court within a month, with a ruling in favor of BTS. 2QFY24F earnings outlook. We expect earnings to be better QoQ due mainly to improvement in JMART and SINGER. Managements of both at their analyst briefings said they believe net profit hit bottom in 2Q23 and profit should return in 3Q23. However, improvement for BTS will be small since it will have to book operating cost for the Yellow Line in 2QFY24F (Jul– Sep 2023). Revise down FY2024F. We slash our FY2024F by 63.7% to Bt693mn (-64.5% YoY) after cutting its equity income assumptions to reflect weak results at JMART, KEX and RABBIT in 1QFY24. Risks and concerns. Potential impairment of VGI (BTS has 60.2% stake) as KEX share price (VGI holds 15.5%), has fallen substantially recently. |
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